AFC Housing and Real Estate Finance 4

Question 1

A homeowner with a $250,000 mortgage balance has a home valued at $200,000. This situation is best described as:

Accepted Answer

Being underwater or upside-down

Answer

When the mortgage balance exceeds the home's market value, the homeowner is said to be underwater or upside-down on their mortgage.

Question 2

Which federal law requires lenders to disclose the Annual Percentage Rate (APR) and total finance charges to borrowers before loan closing?

Accepted Answer

Truth in Lending Act (TILA)

Answer

TILA (Regulation Z) mandates disclosure of the APR and total cost of credit so borrowers can compare loan offers.

Question 3

A 5/1 ARM mortgage means the interest rate is fixed for the first:

Accepted Answer

5 years, then adjusts annually

Answer

In a 5/1 ARM, the rate is fixed for 5 years and then adjusts once per year based on a benchmark index plus margin.

Question 4

Which type of deed provides the GREATEST protection to a home buyer because the seller warrants the title against ALL prior claims?

Accepted Answer

General warranty deed

Answer

A general warranty deed guarantees the title against all defects and encumbrances, even those arising before the seller owned the property.

Question 5

A client is considering a 15-year mortgage versus a 30-year mortgage for the same loan amount at the same interest rate. Which statement is MOST accurate?

Accepted Answer

The 15-year loan has higher monthly payments but significantly less total interest paid

Answer

A 15-year mortgage has higher monthly payments but dramatically reduces total interest paid because the principal is repaid in half the time.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Housing and Real Estate Finance 4